Below is an excerpt from our monthly Competition Report. More detailed commentary on these issues and other recent competition law developments in the Asian region are to be found in this month’s edition of our report available on a free subscription basis (see further below).
Merger remedies in China
This month, the Antimonopoly Bureau of China’s Ministry of Commerce conditionally approved the merger between Dow and DuPont. It is the first conditional approval decision adopted this year.
At the time of the Chinese approval, the parties had already agreed on remedies with competition authorities in several other jurisdictions, including the European Union and Korea. While these remedies overlap in part with those agreed with the Chinese authorities, the parties had to address specific concerns on the Chinese markets.
In common with the solution accepted in other jurisdictions, the parties committed to divest certain business activities prior to completing their transaction. It is only the fourth time that the Antimonopoly Bureau’s approval has been made conditional on a “fix-it first” divestiture commitment. While there appears to be a growing willingness to adopt solutions that are implemented ahead of completion, there remains no discussion in the public announcement that would indicate a marked preference for this type of remedy.
Also of interest to parties to difficult M&A transactions is the continued reliance by the Antimonopoly Bureau on so-called “behavioural” remedies, under which parties commit to supply their products at reasonable prices and on a non-exclusive basis as a way to address concerns expressed by Chinese customers and distributors. These remedies offer parties more flexibility, although it subjects them to ongoing supervision by the authorities (in this case, five years); they also offer the Antimonopoly Bureau a way to address concerns that are specific to Chinese stakeholders (of note is that the beneficiaries are defined as “Chinese companies whose headquarters are located in China”, and as such do not appear to include competing multinationals operating in China but not headquartered in China).
Hong Kong Competition Commission publishes study on auto-fuel market
On 4 May, the Hong Kong Competition Commission published the results of its market study on the auto-fuel market. The study was initiated following public dissatisfaction with perceived high retail petrol prices.
While the Commission did not find evidence of anticompetitive practices, the report highlights a number of features of the auto-fuel market which may explain the high prices. These include the fact that (i) auto-fuel suppliers engage in parallel pricing – where one retailer changes its prices in line with other retailers at a delay of one to two days; (ii) retailers do not use prominent price boards that promote price transparency; (iii) retailers offer discounts which vary amongst different categories of customers; (iv) retailers apply a uniform pricing policy across different areas in Hong Kong; (v) the discount system is complex and opaque, rendering it difficult for customers to effectively compare prices; and (vi) retail prices broadly correspond to fluctuations in input costs.
In observing similarities in the cost structures amongst retailers, the Commission also notes a concentrated sector with only five major retailers of petrol (four of whom are vertically integrated and own and operate storage facilities as well as their own petrol stations) and high barriers to entry, including difficulties in obtaining petrol station sites and access to terminal storage facilities.
Against this background, the Commission makes a number of recommendations to the Government, including: (1) to increase the availability of petrol station sites; (2) to review the existing tendering procedures for petrol stations; (3) to request retailers to use prominent price boards at petrol stations to advertise prices and discounts to increase price transparency; (4) to introduce an access regime which would require existing retailers to allow third-party access to their terminal storage facilities; and (5) to establish an “open access” storage facility operated by a third party.
Table of contents of our May 2017 report (Issue 100)
China MOFCOM conditionally approves merger between Dow Chemical and DuPont
Taiwan Haircare products supplier sanctioned for resale price maintenance
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